The price decrease from Rs 2,000 to Rs 1,800 Quantity demanded per year increases 5000 to 6000 units. Which of the following is correct ?
Correct answer: A. The price elasticity of demand is -2
- A. The price elasticity of demand is -2
- B. The good is inferior
- C. Income elasticity is + 0.5
- D. Income elasticity is + 2
Explanation
Using the usual initial-value percentage method, price falls by 10% while quantity demanded rises by 20%, giving elasticity of 20% ÷ −10% = −2. The negative sign reflects the inverse price-demand relationship.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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